Consumer increased in November to the highest level in more than year on optimism about the economy and labor market in the wake of Donald Trump’s victory. The measure of expectations for the next six months edged to almost a three-year high.
Moreover, 51.4% of U.S. households think stock prices are headed higher, according to the recent Conference Board Survey (the highest in history).
Inflation expectations over the coming year dropped to the lowest levels since March 2020 even though in a “special question” asked by the Conference Board did indicate consumers’ biggest concern for next year was higher prices.
Are expectations becoming unrealistic, where many are setting themselves up for failure and disappointment?
As noted many times, complacency in the markets is great. Valuations are stretched and monies are concentrated in a handful of names.
According to Bloomberg, the Magnificent Seven, or the handful of names that comprises over 35% of the S & P 500 capitalization, may not be that magnificent. Earnings are projected to increase around 20% in 2025, nominally higher than the 16% projected for the 493 members of the S & P 500.
The “Mag 7” trade at a blended 32x forward earnings versus a median 19x for the rest of the S & P 500.
Perhaps Bloomberg’s concluding sentence should be internalized…”At present the companies constitute over one third of the S & P 500 by weighting—and by extension a bloated portion of many American’s retirement savings. That feels like a bit too much of your future to trust to a group of richly priced companies all leveraged to the same narrative.”
Changing topics, the Minutes from the recent FOMV meeting were released. Perhaps of significance is the uncertainty surrounding the neutral rate, a level of policy that neither restricts nor stimulates economic growth.
The minutes indicate estimates for “neutral” have steadily climbed over the past year. By definition, a higher neutral rate demands greater profit growth to offset the negative implications of a greater risk-free rate.
The Committee indicates broad support for a careful approach to future interest rate cuts. Markets were generally unmoved by the release.
Today revised third quarter GDP and its ancillary inflation data is released. Analysts are not expecting significant revisions from its initial release about a month ago. Also released are durable goods orders, inventory levels, personal spending/income and some housing statistics. What will be the market’s reaction to this data dump.
Last night the foreign markets were mixed. London was up 0.04%, Paris down 0.95% and Frankfurt down 0.32%.. China was up 1.53%, Japan down 0.80% and Hang Seng up 2.32%.
Futures are mixed ahead of the PCE data and the various interpretations of Trump’s cabinet picks. The 10-year is up 12/32 to yield 4.26%.
I wish you all a Happy Thanksgiving
